Focus on Fiscal Consolidation

The past two decades have seen the development of a worrisome and unprecedented phenomenon - the ballooning of public debt in industrial countries during a period of general peace and economic prosperity. In the past, large but temporary budget deficits arose in response ... extreme circumstances, such as major wars or global economic depression. But these debt problems were transitory, because in their wake, governments tightened their belts and cut back ... spending.

A striking characteristic of modern fiscal imbalances is that they originate ... dramatically increased spending rather than falling revenues.

Economists identify several forces that may be behind these imbalances in industrial countries, including:

• the growth of public pension and social spending. Aging populations in industrial countries are growing dramatically, which means more elderly people to support, much higher health care bills, and a smaller share ... the population to work and pay taxes. These future liabilities dramatically worsen the budget prospects of industrial countries. According ... IMF staff estimates, public pension liabilities in 1994 exceeded 68 per cent ... GDP in all major industrial countries. The situation is even worse when commitments to provide future health care benefits are taken ... account. The bad news conveyed ... these figures is that public pension programs are much more generous than governments are likely to be able to support. Future generations of workers will thus face ... either much higher tax burdens to maintain the levels of benefits or sharply reduced benefits;

• unemployment benefits;

• the productivity slowdown since the early 1970s;

• increased exchange rate flexibility since 1973 and growing integration of world capital markets, which make it easier for governments to run large budget deficits.

Persistently high levels of government debt are a threat ... economic health. The heavy public debt burdens in most industrial countries make it imperative ... governments to take unpopular and painful... people remedial actions.

Words you may need:

Англійський	Російський	Український
fiscal consolidation	укрепление бюджетно-налоговой политики	укріплення бюджетно- податкової політики
worrisome	вызывающий беспокойство	той, що викликає неспокій
balooning	расширение	розширення
transitory	временный	тимчасовий
in the wake of	по следам, по пятам	по слідах, по п’ятах
to tighten one's belt	затягивать пояс	затягувати пасок
public pension liabilities	обязательство по выплате пенсий	забов’ язання з виплати пенсій
imperative	настоятельный	наполегливий
painful	болезненный	хворобливий, болісний
remedial	коррективный	(тут) корективний

Ex. 8. Open the brackets putting the verbs in the correct form:

Transition economies recently (to make) impressive steps towards reducing fiscal imbalances. Cuts of cash expenditure (to bring) about a decline of fiscal deficits for the GEE countries as a whole to about 4 per cent of GDP in 1995 from 10 per cent in 1994 on average. This was mainly the result of large reductions in enterprise subsidies, military spending, and capital expenditures. Despite these spending cuts, however, outlays for social services (such as schools and hospitals) and social security (to remain) relatively stable, relative to GDP. Over the same period, general government expenditures (to fall) on average to 30 per cent of GDP from 38 per cent. While the economies in transition (to make) solid progress over the past few years toward fiscal consolidation, macroeconomic stabilization (to require) additional reduction of inflation and successful implementation of:

• structural reforms, including reform of the tax system and the public expenditure system;

• improved revenue collection through elimination of loopholes, tax evasion and exemptions, broadening of the tax base;

• greater political leadership of the reform process - especially by formulating long-term fiscal adjustment policies.

Words you may need:

Англійський	Російський	Український
transition economies	страны с переходной экономикой	країни з перехідною економікой
on average	в среднем	у средньому
loophole	лазейка	лазівка
tax evasion	укланение от уплати налогов	ухилення від сплати податків
leadership	руководство	керівнитсво

Ex. 9.

a) Fill each gap with a suitable word from the box.

b) Sum up the text in 5-7 sentences and present your summary in class.

repaid supply occur

reliance adversely reduced

leads bank limit

Financing the Deficit

Since the early 1970s quite a number of countries have been experiencing serious financial problems which have caused growing budget deficits.

Trying to find solutions to swollen budget deficits, governments undertake austerity programmes, work out harsh budgets, implement macroeconomic stabilization, establish priorities for government spendings, analyse effects of different ways of financing their budget deficits.

In principle, budget deficits may be _________ by borrowing from domestic bank and nonbank sources, and from the rest of the world. Excessive ________ on any of these methods of finance may be dangerous because:

• Government borrowing from the central _____ directly affects the monetary base and the money _____. Excessive growth in the money supply leads to high inflation rates and balance-of-payments problems.

• Substantial borrowing from the nonbank sector may _____ аffect the structure of demand and growth potential. In particular, this borrowing may _________ the availability of resources to finance private investment. Such "crowding out" of private investment may_________ through the impact of government borrowing on domestic interest rates.

• Reliance on external finance _________to the accumulation of debt, which needs to be serviced and eventually ___________.

A prudent fiscal policy permits a public deficit, but it must be maintained at a level consistent with other macroeconomic objectives: controlling inflation, promoting private investment, and maintaining external creditworthiness.

Words you may need:

Англійський	Російський	Український
austerity programme	программа жесткой экономии	програма жорсткої економії
harsh	жесткий	жорсткий
crowding out	вытеснение частных инвестиций государственными расходами	витеснення приватних інвестицій державними витратами

DISCUSSION

Ex. 10.